NEW DELHI: India, which is predicted to grow at 7 per cent this financial year, lower than the 8-9 per cent it needs to push the economy to $5 trillion by 2024, will bank on a revival of private investments to help carve out a “virtuous cycle of savings, investment and exports” to unleash the economy’s animal spirits and create jobs to tame a rising spectre of unemployment.
The Survey, an annual feature presented before the budget, argues that a virtuous cycle on the lines of what China has achieved since the 1980s and South-East Asian economies managed in the 1960s and 1970s will see investment productivity growth, job creation, demand and exports feed into each other to grow the Indian economy.
The country’s economy has seen subdued growth in recent quarters with GDP growth coming down to just 5.8 per cent in the January-April 2019 quarter, the slowest in 17 quarters. India Inc has stared at overcapacity as demand slackened in many sectors. Automobile sales contracted by as much as 26 per cent in May. A patchy monsoon is also expected to temper the possibility of a pick-up in growth soon.
However, despite a slowdown in the global economy and trade wars, India’s exports grew by 9 per cent to $330 billion. The Survey, written by a team of economists led by the new Chief Economic Advisor Krishnamurthy Subramanian, emphasises that exports could absorb excess capacities when domestic demand is slow. However, export-led models may have limited success in the current decade as “most nations including the world’s biggest market USA, is resistant to another China coming up to challenge its domestic industry,” warned Prof. Biswajit Dhar of Jawaharlal Nehru University.
More than exports, the Survey pins hope on private investment as the “key driver” supporting job creation, which in turn would create demand. To catalyse the uptick, among other things, it underlines the need for legal reforms to unblock economic activity, presenting data as a public good that could be commercialised, policy consistency, reducing the cost of capital, using behavioral economics to encourage change and nourishing MSME firms to create jobs while bringing in sunset clauses to ensure that small businesses eventually scale up rather than continue to remain small to enjoy subsidies.
“It (virtuous cycle) is a time-tested model followed by other Asian economies… However, that said, we have to see how it plays out given the current economic scenario with its liquidity problems and our ongoing problems of land and labour rigidities,” said N R Bhanumurthy of the National Institute of Public Finance and Policy. A liquidity crisis in the country’s non-banking financial companies has, however, hit slowing private savings and investment.